Why Ackman is right and wrong about index funds

Ackman rightly says that index funds will “keiretsu” corporate America by showering attention (passive as well) on a mostly-stagnant pool of assets, thus propelling their value over time (and unfairly over the rest of the herd). But if mean-reversion holds true, those index funds will create a minefield for themselves and self-destruct; because as value creation dies (falling victim to stupid money continuing to chase a limited set of assets), distorted valuations between the “chased” and “not chased” will herald the natural death of index plays and the rise of “active” plays that focus on value. Perhaps Ackman is saying he can’t wait for that event to happen?



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